First-time buyers in Canada can use two tax-sheltered accounts toward a home: the First Home Savings Account (FHSA) and the Home Buyers’ Plan inside an RRSP. They work very differently, and many buyers can use both.
Side by side
- Deduction: both give you a tax deduction for contributions.
- Withdrawal for a home: FHSA withdrawals are tax-free and never paid back. Home Buyers’ Plan withdrawals are tax-free but must be repaid to your RRSP over 15 years.
- Limits: the FHSA allows $8,000 a year and $40,000 in total. The Home Buyers’ Plan lets you withdraw up to $60,000 from your RRSP.
- If you never buy: FHSA money can move to your RRSP without using RRSP room. RRSP money just stays for retirement.
Why the FHSA usually comes first
The FHSA is the only account that gives you a deduction going in and no tax coming out, with nothing to repay. For most first-time buyers, filling it first is the better deal. Room only starts once you open the account, so open one early even if you add little.
When the RRSP helps
If your down payment target is larger than what the FHSA can hold, the Home Buyers’ Plan adds up to $60,000 more. It suits buyers who already have RRSP savings. The catch is repayment: at least one fifteenth of the amount each year, or the shortfall is added to your income.
Using both
You can use the FHSA and the Home Buyers’ Plan for the same home. A couple can each have both, which can mean a large tax-sheltered down payment. Check current rules on timing, such as how long you must hold RRSP money before withdrawing it, before you plan around them.
Example
A buyer who puts $8,000 a year into an FHSA for five years has $40,000 plus growth, all tax-free on withdrawal. If they also have $30,000 in an RRSP, they could withdraw it through the Home Buyers’ Plan and repay $2,000 a year for 15 years.
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Frequently asked questions
Do I qualify for the FHSA?
You must be a Canadian resident, at least 18, and not have lived in a home you or your spouse owned in the current or previous four years. See our FHSA guide.
Can I transfer RRSP money into an FHSA?
Yes, within the FHSA limits, but you do not get a second deduction for it.
This is general information, not tax advice. Rules change, so confirm with the CRA. Ask other first-time buyers in the community.
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